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Gratuitous Behavior

Here's a tip for restaurateurs: Before you cut into your waitstaff's wages, check state regulations.

That's not entirely true, says Mary Blue, director of the state's Division of Labor Standards. According to Minimum Wage Order Number 21--a state labor department document that regulates wages, hours, working conditions and procedures for employers and employees in the retail, food and beverage, health and medical, service, and construction industries--employers are allowed to force employees "to share or allocate such tips or gratuities on a pre-established basis among other employees of said business who customarily and regularly receive tips." The key words there, Blue says, are "employees...who customarily and regularly receive tips." In other words, she explains, "employers can only force their employees to hand over money from their own tips to tip other employees if those other employees normally receive tips. And I think it's quite arguable whether busboys or hosts customarily and regularly receive tips."

The vagueness of the regulations regarding tipping has been a source of contention for some time in the restaurant industry. In an attempt to clarify the rules, a few weeks ago the labor department proposed an update, Minimum Wage Order Number 22, which adds the words "from customers" to make it clearer just who "customarily and regularly" receives tips, and also includes wording specifically prohibiting the withholding of credit-card processing fees from employees' tips. The department is holding hearings on the proposal this week; if it is approved, it will go into effect on August 1.

That won't be soon enough to suit the restaurant industry. Last September, Colorado Restaurant Association president Pete Meersman sent a letter to the state's Division of Labor Standards requesting a clarification of its regulations, particularly with regard to federal standards. While the wording on tip withholding in connection with tipping other employees is similar on both state and federal levels, he points out, the federal Fair Labor Standards Act does not address the matter of withholding tips to pay credit-card processing fees. And while the current state wage order doesn't address the issue, either, in 1997 the Colorado labor department ruled that it was a violation of regulations for a restaurant to withhold a portion of tips to cover credit-card costs. "When I wrote the letter to the state labor department, it was not that I approved of the withholding," Meersman explains. "It's that CRA members were asking us whether they were allowed to do it, and I wanted a clear explanation of what the rules were. In fact, I don't agree with the practice, I don't think it's fair, but I do think that it's difficult to maintain consistency when the federal and state codes don't match. I just don't see why it has to be so complicated."

And in fact, the response Meersman received from Department of Labor and Employment executive director Jon Numair was much more straightforward than the department's regulations. "I believe that when customers leave tips for employees on credit cards, they do so believing that they are rewarding the employees for the level of services rendered," Numair wrote. "Reducing the amount of tips without informing customers of the reductions defeats the spirit of rewarding employees in appreciation of the services they received."

The proposed changes to the wage order are designed to make the rules clearer. But some ambiguity is inevitable, Blue says. "When you're a government agency, you don't want to make the rules so rigid that you have problems with people fitting into them," she explains. "This regulation only started getting attention a few years ago, when more out-of-state restaurants were coming in. In New York it's okay to take money out of credit-card tips, but in other states it's not. And in some states, especially New York, busboys regularly receive tips from customers. So these large restaurant companies have been confused about where they're allowed to do what, and we needed to address that."

Which is why adding the words "from customers" should make at least part of the regulation clearer. "That way, restaurants from other states will understand that we mean that since busboys in Colorado don't normally get tips from customers, then the restaurant can't take out money from waiters' tips to give to the busboys," Blue says. "Now if the waiters want to give up some of their tips, that's fine."

When a restaurant is found in violation of tipping regulations, Blue says, "the restaurant immediately gives up its right to take what's called the 'tip credit.' That's the $3.13 that makes up the difference between minimum wage and the $2.02 restaurants are allowed to pay tipped employees. So the restaurant would have to pay that difference to the waitstaff." Still, she admits her department's ability to enforce the rules is limited. Since they receive 14,000 phone calls a month regarding wage violations in a variety of fields, state labor officials concentrate their resources on frying the big fish.

"We simply don't have the budget to go after every one of these cases ourselves," Blue says. "Labor department employees are usually available to testify about department policy at small-claims court, which is really the best avenue for individuals. We really only like to take a specific business to court if there's a larger issue that affects a multitude of employees. For us to get involved, it would have to be a case like a large restaurant chain taking money out of everyone's tips for credit-card fees."

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